In an age of Instagram, Instacart, and instant gratification in general, a more tech-savvy generation is looking to a streamlined way to save and invest their money. This is evidenced by the growing number of robo-advisors entering the automated investment management arena as well as the growing AUM managed by these advisors. Earlier this week, InvestmentNews published a story announcing that LPL Financial was throwing its hat into the ring. Other independent broker dealers including Cambridge Investment Research Inc. and Commonwealth Financial Network announced their intentions to have robo-adviser offerings earlier this year. They will be entering a part of the market dominated by relative industry newbies Betterment and Wealthfront and industry mainstays Charles Schwab & Co. and Vanguard with AUM totals of $2.52 million, $2.56 million, $3 billion, and $21 billion, respectively.
While these names and figures may seem intimidating to companies trying to enter this space, fear not. Financial technology, or FinTech, is ever evolving in ways to give the consumers what they want: transparency and ease of investing. This coupled with a change in factors driving the brand loyalty of Millennials leaves the robo-advising world open for everyone with the willingness to take the risk and lead market innovation.
So what should new companies entering the robo-adviser world think about from a compliance standpoint? Having a service that is completely automated and only provided via a website and/or phone application requires that you have sound cybersecurity and privacy policies in place to detect and prevent hacking and identify theft as well has having a customized Terms of Use for advisory clients to acknowledge in order to set the expectation of how your site will work. Your automated program must also take into account how you will verify client identities and check client names against terrorist watch lists in a way that is both affective and is seamlessly integrated into your code. While Red Oak will not create the code for you, we can get your company registered and assist you with the workflow of your software in order to successfully integrate the necessary regulatory requirements. For more information, please contact us at 888.302.4594 or at sales@redoakcompliance.com.
About Red Oak Compliance Solutions
Red Oak Compliance Solutions is the global advertising review software of choice in the financial services industry. It is a comprehensive suite of SEC 17A-4 compliant features that are 100% books and records compliant and provides clients with 35% faster approvals and 70% fewer touches or better. We also offer Smart Review(SM), which solves for the storage and maintenance of disclosures, helping firms reduce risk, decrease review times, and increase the speed of distribution of marketing materials. Smart Registration(SM) automates the licensing and registration management process to help reduce regulatory risk and time spent on manual processes. Overall, Red Oak allows firms to minimize risk, reduce costs, and increase compliance review process effectiveness and efficiencies.